To Become Wealthy: Contract Details Part IV

Feasibility Period: This is a very important section. This is where it simply states that we can terminate the contact for any reason within 28 days of signing. Our realtor is currently extending this date by an extra 14 days due to the holidays holding things up. This will probably also extend our closing date, but I am not entirely sure about that. If we do decide to back out of the contract within this time frame, we will have to pay the seller $360 and we will get back our earnest money deposit.I was very pleased when I learned about this part of the contact. No such thing was included in the contract when we purchased our current home. I believe that it is reserved for commercial properties only and I do not know if that is true in all states.

Inspections, Studies or Assessments: This part simply states that we need to have an inspection done within this feasibility period, and that we are required to pay for it. The seller just needs to make sure that we have access to the property and that all of the utilities are turned on. There is also a nice point about the buyer being responsible for any damages cause by the inspection process.

To Become Wealthy: Contract Details Part III

UCC Search: This stands for the Uniform Commercial Code. I was not familiar with this and had to look it up on my own. All that the contract says is that the seller has 10 days to provide documents that are on file with the state and county to show where the property is located that relates to all the personal property on the property, and to list all the owners of the personal property in the last 5 years. Then it further states that we would then have 7 days to object if there is something that may encumber the title or if any portion of the property is in a flood zone.

This is one definition that I was able to find. “In plain language, the Uniform Commercial Code allows a creditor to notify other creditors about a debtor’s assets used as collateral for a secured transaction by filing a public notice (financing statement) with a particular filing office.” This really does not tell me too much more. Basically I am going to double check with my realtor that this was done and review all documents that are involved to see if anything looks questionable.

To Become Wealthy: Details of the Contract Part II

Title Policy: “Seller, at Seller’s expense, will furbish Buyer an Owner’s Policy of Title Insurance from state company, in the amount of the sales price, dated at or after closing, insuring Buyer against loss under the title policy, subject to:” blah, blah, blah

This sounds to me like the seller is responsible for getting title insurance for us. However, I do not believe that this is correct because when we purchased our current residence we were responsible as buyers to have out own title insurance. I believe that this section means that they seller must prove that he had title insurance from the initial purchase of the property to prove that he has legal rights to the title, and if something occurs the title is insured. I am going to check this out with my lawyer just in case.


Survey: This is simply stated also. Within 10 days the seller needs to provide us with a survey of the property, that was done after the date of the contract, by professional surveyors.

To Become Wealthy: Details About the Contract Part I

Contracts are very difficult for anyone who has not spent years studying law to read. We live in a very litigious society that has lead to an increased wordiness of any legal document. Once more lawyers get involved, the amount of paper increases geometrically. It can sometimes be terrifying to witness.



However, I am going to attempt to explain our contact to the best of my understanding. Please feel free to jump in if I have made any errors in my interpretations.



It starts out simply enough identifying the sellers and the buyers, and the location of the property that is being sold and bought. Then it even goes as far as to list all of the things connected with the property such as the rights to the leases, and warranties, trade names, or anything else associated with the ownership of the property. And of course the most important portion of the entire document also appears on the front page. The Sales Price complete with the amount that we are to put down in cash at closing.



Page two includes a contingency that allows us out of the contract if we cannot secure financing. This seems kind of obvious to me, but I guess it needs to be there. But in order to actually get to this point we needed a pre-approval letter from a bank to prove that at least one bank is willing to give us financing. So, this item seems a little redundant to me.



Earnest Money: This is the amount of money that you need to present to the seller along with the bid. It is being held by the listed Escrow company and the seller will receive it at closing as part of the down payment, or it will be return to us if the purchase falls through. I have absolutely no idea why this needs to be done. What is the point? We have already proved that we are not penniless delinquents before we placed the bid, why do we also have to show that we can write a check for a few thousand dollars. What is this supposed to prove? Does the seller feel some sort of security knowing that a portion of our money is in an escrow account? It is fully refundable to us if we back out of the deal or if the seller does. But it is one of the things that we had to do, so it is stated in the contract.

To Become Wealthy: The Next Step

Our closing is not until Feb 2nd. Of course this is dependent on everything working out between now and then. There are all sorts of details in the contract that give both parties an out. But I have no doubts at this time that we will purchase this property.

I have a lot of work to do to prepare for the purchase of this property, but my mind keeps wandering to the time after we purchase this property and are looking for the next one. I think back to a previous blog where I mentioned that the profoundly successful people are the ones that did not diversify but rather took big risks in one area that paid off. So, do we continue to look in Dallas or concentrate in other areas? Should we look at non-residential real estate investments? The difficult thing is realizing that there are no answers to these questions. So, I will just continue to look at everything until something, somewhere looks good to me.

Until then, I need to review the details of our current contract better to see what I can learn from it.

To Become Wealthy: Under Contract

As of yesterday we are officially under contract for our first real estate investment purchase. I could not be more excited and nervous at the same time. It is an entirely different feeling from when we were purchasing our first home for our primary residences, and that was a more expensive purchase.

To make an odd point about why we are not investing close to where we live. The cost of our 3 bedroom, 1.5 bath house here on the east coast is more than the cost of a 15 unit apartment complex in Dallas. Crazy but true. You need to already be wealthy in order to invest anywhere within driving distance of where I am now.

The next step for us is to find a property inspector. I spoke to two of them today, and it is going to cost us between $1200 to $1800. I just need to coordinate the times with the realtor and property managers. According to the contract, we have 28 days to back out of the contract for any reason that we find upon further inspection of the property and the paperwork associated with the deal. So we are trying to get it all done soon.

I also spent the day on the phone with a few mortgage people starting to rate shop. The mortgage is going to be the largest expense so I want to make sure that we get a good deal.

So much work, so little time.

To Become Wealthy: Learning Something New

I was reminded today of something I had learned about sometime last year that I was very excited about, and then moments later it was invalid. It is a method that some investors use to get back money at the closing. What happens is the buyer applies for a mortgage at an amount that is higher than what the seller really wants for the property. Of course that stated higher amount must be written in the contract. And then at the closing the seller gives the buyer cash back to help with the closing costs. It is a way of rolling the closing costs or a portion of the down payment into the mortgage costs.

When I first read about it I did not think it all that likely to be true. After all it was part of a no-money-down-deal or something similar. I do not really recall where exactly I first saw it, but since then I have seen references to it, and legitimate references at that.

So, while we were discussing our latest bid and the fact that the seller is willing to give us credit to redo the exterior of the building I thought that this might be one of those instances where we would get a mortgage for the higher amount and receive cash back at the closing to cover the repairs. Of course this really perked my interest. Cash in hand is a good thing.

But then when I inquired further with my realtor she told me that those sort of cash-back-at-closing deals are illegal in Texas. The credit we would receive for this property would be held in escrow until any work was completed, and then paid directly to the contractor.

What I learned today: Follow your first instinct. It will be the right one.

To Become Wealthy: The Counter Offer

Today we received a counter offer. It was simply stated. They will sell for our offered price of $360,000 but then will not give us a credit to re-do the exterior. If we want the credit, we will have to pay $385,000. Does anything think it will cost $25,000 to redo siding and stucco for 2 buildings? I honestly have no idea.

So, now I am going to desperately call several siding businesses in Dallas tomorrow to try to get a rough idea of how much this is really going to cost us. Hopefully I can convince someone to give me a free estimate and actually drive over to the property to tell me how much work it really needs.

I am thinking of countering with $370- $375 including the credit. But what I an not believe is that this property was first listed at $450,000 and here he is willing to take $90,000 less. That is a 20% mark down. From now on I am going to grossly underbid all properties.

To Become Wealthy: We Placed a Bid

On Friday we placed a bid on the 15 unit property in Dallas. Having looked over all of the property info several times, we decided to bid $360,000. To place the bid was an entirely daunting process itself.

First, the realtor required us to have a pre-approval letter from a lender. This was a quick and easy process that took all of 5 minutes to complete when we were going to purchase the house that we currently live in. The process for buying a commercial property is completely different. It took most of the week, with several back and forth phone calls for more information. Basically the bank wants to make sure that the property will make money and does not care too much about our personal info outside of our credit scores.

They finally approved us and we were sent the letter off to our realtor. In turn she sent us a 17 page legal document that would serve as our bid. We wanted to get the bid in by Friday as a nice way to round off the week. Of course now that we were sure that we really wanted to place the fear of someone beating us to the bid grew and grew. I am still working on getting a lawyer, although I did play a bit of phone tag with one on Thursday and Friday.

We spent one very late night reviewing the bid documents and we only added one part about a credit amount that was yet to be determined for work to be done on the exterior. And off to FedEx I went with signed documents and a 1% earnest money check.

Then we waited…..